Spanish Bonds Advance With Italian Peers Before Debt Redemptions

July 26 (Bloomberg) -- Spanish and Italian bonds gained
this week amid bets that redemptions of about 52 billion euros
($70 billion) will bolster demand for securities that have been
supported by prospects of monetary easing.

Spain’s 10-year yield dropped to a record yesterday as
concern that turmoil in Portugal’s banking industry will infect
the euro area eased. Spain has 16.4 billion euros of bonds
maturing on July 30, while Italy is due to repay a total of 36
billion euros of debt next week, including a 27 billion-euro
redemption on Aug. 1 that’s the biggest this year. German bunds
were little changed as 10-year yields approached a record low.

“Substantial cash flows that we will be getting from Spain
and Italy over the next week are supporting the market,” said
Norbert Aul, a rates strategist at Nomura International Plc in
London. “This, combined with the fact that uncertainty about
the Portuguese banking sector has been scaled back to some
extent, has been supporting the peripheral spread compression.”

Spain’s 10-year yield fell six basis points, or 0.06
percentage point, this week to 2.54 percent at 5 p.m. London
time yesterday, when the rate touched 2.524 percent, the least
since Bloomberg started collecting the data in 1993. The 3.8
percent bond due in April 2024 climbed 0.49, or 4.90 euros per
1,000-euro face amount, to 110.745.

Italy, Portugal

The rate on similar-maturity Italian debt slid seven basis
points to 2.71 percent, after reaching a euro-era record 2.694
percent on June 9. The yield on equivalent Portuguese bonds
declined three basis points to 3.64 percent. The rate has
dropped from 4.02 percent on July 10, the highest since May.

Portugal’s bonds gained for a second week even as Espirito
Santo Financial Group SA, which has a 20 percent stake in Banco
Espirito Santo SA, sought protection from creditors because it
was unable to pay all its debts. The July 24 request was the
third in a week from companies linked to the Espirito Santo
family. Banco Espirito Santo, Portugal’s second-biggest bank by
market value, will probably raise private funds to boost
capital, central bank Governor Carlos Costa said July 18.

The flare-up in Portugal had revived memories of its role
in the euro-area crisis, which pushed yields across the region’s
high debt and deficit nations to euro-era records. That prompted
European Central Bank President Mario Draghi’s 2012 pledge to
safeguard the currency bloc with backstops which helped stanch
the selloff.

Turmoil in bond markets was contained by stimulus measures
announced by the ECB last month, which included charging lenders
to park cash with it overnight and targeted cheap loans.

German 10-year yields were at 1.15 percent yesterday, down
less than one basis point since July 18 and within three basis
points of the record 1.127 percent set in 2012.